Where to get good advice:
The TV market news sites above,CNBC, Bloomberg, ... give you both sides of the story so you have to figure out for yourself who is right. The guys at our computer investing group say they turn the sound off and watch these only to get current movement.

A report in the June 25, 2007 Wall Streeet Journal shows that Economist's consensus forecasts aren't that accurate. You expect more volatility in the actual results since the forecasts are averaged across multiple analysts, but the forecasts were right in the direction of change only half the time.

Jim Cramer's Mad Money picks can move a stock up in the short run, but according to the old web site "CramerWatch.org", after 30 days he is right only 49% of the time.

Value Lineis a service that ranks stocks from 1 to 5 for timeliness. They claim their recommendations beat the market, however the Value Line Fund, which uses the Value Line ranking system to direct its stock picks has churned out so-so performance numbers relative to other large-growth funds.By 2000, Value Line's top picks had fallen below market returns for five straight years.
In each of the four calendar years from 2001 through 2004, Value Line's Group 5 stocks outperformed the Group 1 stocks, just the reverse of Value Line's expectation. These four years in a row constituted the longest sustained period since inception in which Value Line's ranking system didn't work. Common wisdom was if you bought just before a stock got upgraded to a 1 you would make money, but buying after it was a 1 wasn't that good.
In 2005, however, the ranking system righted itself according to HFD.

Mutual Funds:MorningStar is the Leading provider of mutual fund research and ratings.
In a 1997 Forbes article reported that half the domestic equity no-load funds got a four- or five-star ranking. Only a quarter receive a one or two-star ranking.
This bias in the Morningstar ranking system was discovered by Wharton professor Marshall Blume. He found that Morningstar doesn't grade domestic equity no-loads just against their peers. It puts them into a universe that also includes load funds and sector funds, which come out below average because of their sales commissions. Also a fund only required a 3 year history, which gives new funds an advantage. They point out that Hulbert Financial Digest which was tracking Moringstar performance found the rating had little value for predicting future performance.

An 2001 A.G. Edwards study illustrated the unpredictable
nature of money manager performance.
They used Effron Enterprises money manager database comparing over 1,000 managers.
They ranked managers over a 5 year period and looked at how they faired in the next five years. They found little correlation. Results:

Quartilein 1st 5 yrs.

Quartile in 2nd 5 years.

1st

2nd

3rd

4th

1st

30%

17%

16%

37%

2nd

23%

24%

27%

26%

They also ranked managers by how many years they were in the top half, and it was a normal distribution with the majority only being in the top half 5 out of 10 years and none consistently for 10 years. Only 4% ranked in the top quartile for more than 5 of the last 10 years.

Why don't Mutual Funds beat the market?
According to the Motley Fool's web site:
- "On the whole, the average mutual fund returns approximately 2% less per year to its shareholders than does the stock market in general."
- "Over time, because of their costs, approximately 80% of mutual funds will underperform the stock market's returns."

A Bernstein GLobal Wealth Management Report in 2003 says:
Over a 20 yr. horizion managed funds returned an average of 6.5% after taxes compared with 7.8% for index funds while the market was up an average of 9%.

According to the International Herald Tribune in 1995:
1991-1993 56-60% beat the S&PBut these figures don't mean that the active managers are significantly better at stock picking.Improved performance was caused by the higher weighting that most general equity funds have toward smaller companies. These performed better than blue-chip S&P's 500 stocks during the period covered.
1995 17% beat the S&P
An article in the Desert News stataes:
In 2005 U.S. diversified equity funds, had an average return of 7.2% vs 3.5% for theS&P according to mutual funds watcher Lipper.

Some reasons for underperformance:

Dilution. Mutual funds generally have such small holdings of so many different stocks that insanely great performance by a fund's top holdings still doesn't make much of a difference in a mutual fund's total performance.

Buried Costs. Many mutual funds specialize in burying their costs and in hiring salesmen who do not make those costs clear to their clients. For example they may pay higher than necessary for trades in order to get things like free research.

Since 1983 the number of funds has increased by 25% per year. There are not enough good managers to manage them.

Funds are forced to sell because of redemptions in a bear market driving down prices.

Fees hurt the funds.

Large funds have to invest in the largest, most liquid stocks.

Funds heavily rely on research from the same small universe of big borkerage firms.

What drives the markets:
Why does the market not react or react the opposite way you would expect to news (e.g. gas prices are going up, the trade deficit is up, ...). The TV analysts say the news was anticipated and already built into the markets.
Most of the short term movement is controlled by the institutional investors, market makers, floor traders, etc. The cynical types at the local investing group believe these investors have sophisticated models designed to fleece the individual investors.

I've heard that hedge funds account for 1/3 of the trading.

Logarithmic Charts(Constant rate of increase is a straight line.)
The Dow Jones Industrial Average (DJIA) has been published since 1896. It is the average price of 30 of the largest and most widely held public companies in the United States. Many of the 30 modern components have little to do with heavy industry.
We use the S&P 500 which is a standard benchmark for market performance.
Standard & Poor's introduced its first stock index in 1923. The S&P 500 index in its present form began on March 4, 1957. Historical data back to 1950 is available at yahoo finance.
See 6 big mistakes you can make benchmarking to the S&P 500 - MarketWatch
When you look at a one or two year piece of the S&P chart below up close it looks very scary with periods of losses from 25% to almost 50%. However it demonstrates that in the long run these are little blips. No one has been able to consistently predict the time and size of these drops, so a long term strategy using one of the programs listed below will even out these blips.

Note: The indexes do not include dividends, which for the S&P average about 2%/year so your actual gain would be higher. (See dividends below)
See 1929 Crash

The normally reported index does not include dividends.
As of October 2016, the dividend yield for the S&P 500 was 1.87%. This is below the historical average of 4.41% and close to the all-time low of 1.11% in August 2000.^SP500TR S&P 500 (TR) - Yahoo Finance

Sub-prime lending market problems in Sept. 2007,
the longest profit slump in six years, the first nationwide decrease in home prices since the Great Depression, record oil prices and fears of a recession resulted the worst bear market in recent history.
- Aug. 15, 207 problems with financial institutions produced the largest single day point loss since 9/11 with a 504 pt. (4.4%) loss.

Over the weekend and on Monday, Sept. 15, 2008 Merrill Lynch, one of the biggest and best-known brokerage firms in the world, was sold to Bank of America for $50 billion due to financial difficulties stemming from problems in the mortgage markets. Lehman Brothers, unable to find a buyer, filed for bankruptcy . On Wed. the US Federal Reserve struck a deal to take control of AIG in return for an $85bn loan to stave off a collapse of the giant.

After congress passed a $700 B bail-out bill to help the financial credit crunch, credit markets remained frozen.
The week of Oct. 6-10 was the worst week in history point wise when the Dow dropped 1,874 points or 18.2% 2nd worst percent loss since the 1929 depression.

Can you tell a correction vs a recession by how fast it drops. Fisher Investments says yes..
2000 Recession 5% in first 2 weeks
2007 Ression 4% in first 2 weeks
2010 Correction 10% in first 2 weeks
2011 Correction 11% if first 2 weeks
The 2007

Other Indices:
This chart demonstrates the volatility of Nasdaq relative to the other indexes.
The Dow Jones Industrial is the only major indicator (Dow, Nasdaq, S&P) which had recovered from the 2000-2002 bear market 4 1/2 years later (as of March 2007), as people moved to more defensive stocks.
(Note: The numbers below do NOT include dividends. See dividends below)

S&P 500 - Widely regarded as the best single gauge of the U.S. equities market, it includes a representative sample of 500 leading companies in leading
industries of the U.S. economy, and focuses on the large-cap segment of the
market. The median capitalization size of companies in the S&P 500 is
approximately $13.2 billion.*

Nasdaq 100 Index - 100 of the largest domestic and international
non-financial securities listed on The Nasdaq Stock Market, based on market
capitalization. The index reflects companies across major industry groups
including computer hardware and software, telecommunications,
retail/wholesale trade and biotechnology.

The S&P MidCap 400 is the most widely used index for mid-sized companies
(mid-caps). Today mid-caps are being recognized as an independent asset class,
with risk/reward profiles that differ considerably from both large-ca ps and
small-caps. The median capitalization of the S&P 400 companies is $2.7
billion.

The Russel 2000® small-cap Index
- Measures is the standard small cap index. It includes the
2,000 smallest companies in the Russell 3000 Index.
The index is completely reconstituted annually to ensure
larger stocks do not distort the perfor mance and characteristics of the tr ue
small-cap opportunity set. The median market capitalization of the Russell
2000 Index is $657 million.*
4Q 2006

Index

Median Market Cap

P/E

S&P 500

$13.2B

NASDAQ- 100

$9.6B

29.7

S&P MidCap 400

$2.7B

Russell 2000

$657M

Risk - Volatility:
Small- and medium-capitalization companies tend to have limited liquidity
and greater price volatility than large-capitalization companies. Investments in
foreign securities involve greater volatility and political, economic and
cur rency risks and differences in accounting methods. Investments in debt
securities typically decrease in value when interest rates rise. This risk is
usually greater for longer-term debt securities. Investments in lower-rated and
non-rated securities present a greater risk of loss to principal and interest than
higher-rated securities.

Standard Deviation is one measure of volitility1955-2004

Class

SimpleReturn *

CompoundReturn

Std Devσ

small-cap

15.8%

12.9%

20.1%

large-cap

12.5%

10.9%

14.6%

Corp Bonds

7.3%

6.8%

8.4%

T-bills [1]

5.3%

5.3%

0.8%

* Simple Return - average of yearly returns
Volitility reduces long term return
E.g. if you invest $100 and get 20% the 1st year ($120) and -10% the 2nd year ($108)
your average return is 5% but the compounded return is 3.9%
5% compounded would give you $110.25

Alpha, Beta and Sharpe Ratio are other measures of volitility. See the Glossary page.

1. Risk in long term debt securities (bonds, T-bills) is higher because you are locked into a rate for a longer period of time and price will drop as interest rates go up.

Look for companies which are bargains (e.g. low P/E (Price Earnings) relative to group), but with strong fundamentals. e.g. Cyclical stocks that are at the low end of their business cycle.One study
showed that value stocks outperform growth stocks over long periods of time.

Asset Allocation

In a landmark study, "Determinants of Portfolio Performance," published in the Financial Analysts Journal (July-August 1986), Brinson, Hood, and Beebower examined the investment results of 91 very large pension funds to determine how and why their results differed.
They determined 94% was due to Investment Policy, 4% stock selection and 2% market timing.
Investment policy was defined as the average base commitment to three asset classes: stocks, bonds, and cash.
You allocated a percentage of your portfolio to each class and as the value of one class went up you rebalanced your portfolio moving assets from the class that went up to the lower priced class. (i.e. sell high, buy low).

Several subsequent studies have confirmed that over 90% of the return was due to asset allocation.
Classes have become more complex including things like international stocks, real estate and other investments.

Conventional wisdom was that the percent of your portfolio held in bonds should be equal to your age. The reason is that as you get older you don't want to get stuck having to make withdrawals in a bear market (stock prices down).

Analysis of price movements and trading volumes rather than Fundamental analysis. Technical analysts typically use charts produced by computer tools like Telechart at worden.com or stockcharts.com which calculate things like:

Investor's Business Daily also computes several technical scores for stocks.
Although technical analysts fell out of favor as studies questioned their forecasting powers, increased access to information and the growing power of computers have led to a resurgent interest.
See: Technical Analysis

In the late 1970's Ficher Black of Goldman Sachs, Myron Scholes of Stanford and Robert Merton of Harvard figured out how to price and hedge bond options in a way that guaranteed profits. In 1997 Merton and Scholes won the Nobel price in economics for their work. Only a year later Long Term Capital Management, a highly leveraged hedge fund whose directors included the two Nobelists, collapsed and had to be bailed out to the tune of $3.6 billion by a group of banks.

ETFs (Exchange Traded Funds) vs Index Funds.
Both are designed to match the price of a market index (e.g. the Dow Jones Industrial, S&P 500, etc.)
ETFs can be thought of as a mutual fund that trades like a stock. However, it is not a mutual fund, which has its value calculated at the end of the day; an ETF's price varies throughout the day like the index does. You can also short an ETF like a stock.
Shareholder transaction costs are usually zero for index funds, but this is not the case for ETFs.
ETF's have a creation/redemption in-kind feature of ETFs eliminates the need to sell securities, so minimizing capital gains taxes.
There are other differences like the way dividends are handled.
The bottom line is passive retail investors will usually be better off with Index funds and active traders will benefit from the qualitative advantages of ETFs.
See ETFs vs Index Funds at Investopedia.com.

A common statistic is that the S&P 500 outperforms 80% of mutual funds. While this stat is true in some years, it's not always the case.
Mutual funds have several disadvantages:
Because of the large amount of assets they can only take small positions in individual stocks and can't sell them at one time because they can't find buyers for such large blocks.
Cash float.

Index formulation methodology:
Index formulation methodology could likely have a much greater impact on bottom-line performance than fee structure over time.

Market capitalization weight:
index blueprint that most investors are familiar with: market-cap weighting sizes constituent securities according to the total market value of their outstanding shares. Quite simply, a cap-weighted index will advance or decline more dramatically in value in response to the changes in market value of larger holdings vs. smaller holdings.

Fundamental weight: These indexes are developed to account for comparable company metrics such as book value, earnings, revenue, or even dividend rates. The First Trust Consumer Staples SPLS +1.79% AlphaDex ETF (FXG) and the SPDR Consumer Staples ETF (XLP). FXG is currently up 39.83% year-to-date, while XLP has risen 25.44% through the same time frame.

Inverse Funds:
In an expected market downturn instead of shorting stocks or an ETF (which requires margin accounts, and liquidity to cover margin calls), there are Inverse funds which will go up when a sector or index goes down. These can be used as hedges to avoid short term cap. gains by selling early or for a market strategy which calls for going short at times.
E.g.:
Rydex Inverse S&P 500 Inv CL (RYURX) - Inverse of S&P 500
Fees: Transaction $75, Mgmt. 0.9%, Distribution fee 0.25%
Short Small Cap ProFund Inv CL (SHPIX) - Inverse of the daily performance of the Russell 2000 Index
Rydex Inverse Russell 2000 CL H (RYSHX) -

The investment advisors who offer free lunches to retired people usually push
equity indexed annuities (EIA) and Insurance.
EIAs have a value tied to a stock index but an minimum return (usually around 3%) and a cap on gians, so they are attractive if you are worried about a stock market decline. However, there are usually caps, spreads, margains and crediting methods that can hinder returns and penalties if you cash in early e.g. less than 5 years. They usually have high comission rates also.
I don't know the pros and cons of these but the contracts are usually many pages with lots of terms and conditions. Some providers are:
Allianz Life

Timing the market
Most recommend sticking with your plan even in down markets. Trying to time when to get out and get back in, usually doesn't work.
At Why Your Investment Returns Could Be Lower Than You Think - Forbes they say,
"A recent Fidelity study showed that investors who got out of the market during the 2008 financial crisis only earned back 2% of their portfolio as of the middle of last year while those who stayed the course, earned back 50%. Those who continued contributing did even better, earning 64%, while those who stayed invested but stopped contributing earned 26%."

Option Trading
Options (Puts and Calls) represent the right (but not the obligation) to take some sort of action by a predetermined date. That right is the buying or selling of shares of the underlying stock.
See Option Trading

General Guidelines:

"Bull markets are:
born on pessimism,
grow on skepticism,
mature on optimism and
die on euphoria."Sir John Templeton

Siegel's surprising finding is that the new technologies, expanding industries,
and fast-growing countries that stockholders relentlessly seek in the market often lead to poor returns.

"The Rules of Risk" by Ron Dembo and Andrew Freeman
"All About Asset Allocation" by Richard Ferri
"More Than You Know" by Michael Mauboussin
"Ahead of the Curve" by Joseph Ellis
If You Can: How Millennials Can Get Rich Slowly, William J. Bernstein, 50 pages